6 WAYS TO REDUCE FINANCIAL DISTRESS IN HEALTHCARE

Welcome to the second installment of Pulse on Healthcare. This month’s issue takes a look at the issues causing financial distress for healthcare organizations, and how CFOs can take action to relieve it.

According to the 2022 BDO Healthcare CFO Outlook Survey, 63% of healthcare organizations are thriving, but 34% are just surviving. And while healthcare CFOs have an optimistic outlook—82% expect to be thriving in one year—they’ll need to make changes this year if they’re going to reach their revenue goals. To prevent and solve for financial distress, CFOs need to review and address the underlying causes. Otherwise, they might find themselves falling short of expectations in the year ahead.

Here are six ways for CFOs to address financial distress:

1.      Staffing shortages: 40% of healthcare CFOs say retaining key talent will be a top workforce challenge in 2022.

How can you avoid a labor shortage? Think about increasing wages for your frontline staff, especially your nurses. You could also reconsider the benefits you’re offering and ask yourself what offerings would be attractive for your frontline staff. For example, whether you offer free childcare could mean the difference between your staff staying and walking out for another employment opportunity. Additionally, consider enhancing or simplifying processes through technology to relieve some strain from day-to-day tasks.

2.      Budget forecasting: Almost half (45%) of healthcare organizations will undergo a strategic cost reduction exercise in 2022 to meet their profitability goals.

 How else can you cut costs? One option is to adopt a zero-based approach to budgeting this year. This allows you to build your budget from the ground up and find new areas to adjust costs to free up resources. Consider some non-traditional cost reduction areas, like telecommunication or select janitorial expenses, which are overlooked year after year. Cost savings in these areas can be substantial and quick to implement.    

3.      Bond covenant violations: 42% of healthcare CFOs have defaulted on their bond or loan covenants in the past 12 months. Interestingly, 25% say they have not defaulted but are concerned they will default in the next year.

 How can you avoid violations? The first step to take is to meet with your financial advisors, especially if you are worried you’re going to default on your bond or loan covenants. You want to get their counsel before you default so you can prepare your organization and mitigate the damage. Ideally, they can help you avoid a default altogether.

4.      Supply chain strains: 84% of healthcare CFOs say supply chain disruption is a risk in 2022.

How can you mitigate these risks? Supply chain shortages are a ubiquitous problem across industries right now, but not all of the issues are within your control. Focus on what is, including assessing your supply chain costs and seeing where you can find the same or similar products for lower prices. Identifying alternative suppliers may end up saving you a lot of frustration, especially if your regular suppliers run into disruptions.

5.      Increased cost of resources: 39% of healthcare CFOs are concerned about rising material costs and expect it will pose a significant threat to their supply chain.

How can you alleviate these concerns? Price increases for the resources you purchase — including medical supplies, drugs, technology and more — could deplete your financial reserves and strain your liquidity, exacerbating your financial difficulties. You may be able to switch from physician-preferred products to other, most cost-effective products for the time being. Switching medical suppliers may even save you money in the long run. Involving clinical leadership in the process can keep physicians informed of the choices you are making and the motivation behind them.

6.      Patient volume: 39% of healthcare CFOs are making investments to improve the patient experience.

How can you satisfy your patient stakeholders? As hospitals and physician practices get closer to the new normal of care, patients are returning to procedures and check-ins they put off at the height of the pandemic. Patients want a comfortable experience that will keep them coming back, including a safe and clean atmosphere at in-person offices.

They also want access to frictionless telehealth and patient portals for those who don’t want to or can’t travel to receive care. Revisit your “Digital Front Door Strategy” and consider ways to improve and streamline it. These investments can also go toward improving health equity strategies to ensure everyone across communities is receiving the same level of care.

The tight labor market is impacting provider volumes

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Health systems are on edge after two quarters of shaky financial performance, with skyrocketing labor and supply costs compressing margins. But in addition to cost challenges, many are also reporting a softening of demand, with profitable surgeries and other procedures and diagnostics being hit hard. Some report seeing a drop in elective services (as one COO told us, “We may have finally worked our way through the backlog of delayed procedures from 2020 and 2021”), but in many cases, hospitals are missing the staff necessary to open up much-needed surgical capacity.

One system reported having to shut down operating rooms due to a lack of surgical techsEven more pressing is a shortage in anesthesia capacity, with systems across the country having trouble staffing anesthesiologists and nurse anesthetists. Some practitioners have been rolled up into large, investor-owned groups, which then have taken providers out-of-network for key insurers.

But regardless of ownership structure, a shortage of providers has led to “shoestring staffing” with little ability to cover absences or departures, leading to last-minute cancellations of procedures. Pediatric hospitals have been particularly hard-hit. Most rely on subspecialty-trained anesthesiologists, and as one physician leader pointed out, children’s hospitals use anesthesia not just for surgeries, but also for diagnostics, radiation therapy and other treatments where sedation isn’t required for adults. 

All in, the shortage of anesthesiologists is leading to critical treatment delays and exacerbating revenue concerns. Moreover, systems are facing frustrated consumers, who care little about the complexities of the healthcare workforce shortage and supply chain challenges that led to an abrupt cancellation of their care. 

Hospital At Home Is Not Just For Hospitals

https://www.healthaffairs.org/do/10.1377/forefront.20220520.712735/#.Yo5Jf1zjH8c.linkedin

Hospital at Home programs deliver needed services to appropriate patients in their homes and can effectively serve patients, payers, and providers. The programs provide physician visits, drugs, monitoring, nursing services, diagnostics, and other services at a level typically reserved for patients in inpatient settings. A typical Hospital at Home patient has features that make home care preferable, for example, they may present to an emergency department with uncomplicated, simple pneumonia, have no significant comorbidities, and live with a partner who can provide basic care, such as preparing meals. Studies have shown these programs have lower readmission rates, lower payer costs, and higher patient satisfaction. Patients prefer their homespayers prefer having patients get care in the least acute setting possible, and hospital providers want to have beds available for patients who need them.

While Hospital at Home programs have been studied since the 1970s, adoption had been slow until the COVID-19 public health emergency (PHE) prompted the Centers for Medicare and Medicaid Services (CMS) to waive the Medicare Hospital Conditions of Participation to enable the use of this care delivery model for Medicare beneficiaries. In 2020, CMS implemented the Acute Hospital Care at Home Waiver, which establishes Medicare payment for home hospitalizations. The combination of the PHE and CMS’s regulatory response has generated huge demand for Hospital at Home. By July 2021, eight months after the Acute Hospital Care at Home Waiver program was established, more than 140 hospitals across 66 health systems were approved by CMS to provide hospital services in a home setting. Because of COVID-19, patients and providers have quickly embraced telehealth, and that “stay at home” attitude may bring Hospital at Home into the mainstream. In 2019, the Medicare population had more than 800,000 hospitalizations, which could have qualified for Hospital at Home. As the care delivery model grows in the post-PHE, some important questions remain, such as how insurers will reimburse providers for Hospital at Home services and the types of provider organizations that will embrace this novel care delivery model.

Top-Down And Bottom-Up Payment Approaches

Medicare currently pays for Hospital at Home using a top-down (hospital-centered) payment—the payment is made to hospitals, and the amount is based on Medicare’s payment system for acute inpatient admissions. An alternative, bottom-up approach could generate a payment amount on the basis of existing home-based care payment systems, with additions for the expanded services needed for the more acute patients in a Hospital at Home model. Because home care providers are typically reimbursed at lower rates, this approach to payment would be less expensive and could capitalize on the existing in-home care expertise these providers have, while expanding their reach to a higher-acuity patient population. The co-authors have compared payment options for home hospitalization programs under both the top-down and bottom-up approaches.

Transformation Challenges

The Hospital at Home delivery model faces three significant and related challenges to expansion—generating a sufficient volume of patients to keep local programs in business, achieving cost efficiencies, and defining appropriate patients (not so sick that the patients will fail to heal or be in danger but not so healthy that they don’t need Hospital at Home).

Any health care innovation needs patient volume to be viable. A Hospital at Home program requires teams that can immediately access and deliver all needed care, including diagnostics, monitoring, pharmaceuticals, and nursing services. It also requires physicians adept at working with home-based patients while coordinating all aspects of care. Patient intake and discharge must be handled promptly, including care plans for the patient during their Hospital at Home “stay” and transitioning the patient to their regular providers after the acute phase. Much, but not all, of this infrastructure exists in home health agencies, but Hospital at Home patients typically have more time-sensitive and intense needs than the usual home health patient, which will require some staff expansion by a home health agency seeking to run a Hospital at Home program. A few patients a day will not likely generate enough revenue to maintain the staff expertise or the infrastructure needed to deliver all the different services Hospital at Home patients need.

While it might seem logical that Hospital at Home programs would be sponsored and operated by individual hospitals, many hospitals would not generate sufficient volume to support their own program. In 2019, the national average discharge rate per hospital bed was about 33 per year, and about half were Medicare beneficiaries. A large hospital with 1,000 beds might have 15,000 Medicare discharges per year. On average, we found about 5 percent of Medicare discharges would be eligible for Hospital at Home—only about 15 per week for a 1,000-bed hospital. A program sponsored by a particular hospital might not receive referral patients from competing hospitals because the competing hospitals would be losing patient volume and revenue, and except for extremely large hospital systems, most hospitals would not generate sufficient volume to support the program. A program that serves multiple hospitals will likely have advantages of scale.

When it comes to cost, hospital-based services are well-known to bear facility overhead expenses, which can make hospital-based services more expensive than services delivered from other sites. Medicare pays for hospital inpatient services mostly using diagnosis-related groups. Medicare pays a pre-set amount for each kind of admission, regardless of the actual cost accrued by the provider for a particular patient. But as our analysis shows, starting with Medicare’s home care reimbursement saves the payer more than 50 percent of an acute patient stay, when considering all facility, professional, and ancillary services. Of course, the lower price is appealing to a payer, such as a Medicare Advantage plan, but it could also save a patient money in reduced cost sharing.

Identifying the right patients for medical interventions has been a challenge for decades. The goal is to strike the right balance: avoiding unnecessary care but not skimping on needed care. To promote efficiency and outcomes, private payers and Medicare apply utilization management reviews and quality monitoring. Even for patients appropriate for Hospital at Home, hospitals may dislike the programs, as they fail to see the value of home-based care delivery in the face of many unfilled inpatient beds. On the other hand, home health agency-based Hospital at Home programs could see financial gains and tend to over-use such programs. All of this must be balanced with patient perceptions and acceptance of such programs. Participants who have piloted both top-down and bottom-up models have found substantially higher patient acceptance in models that allow entry to a Hospital at Home admission without an emergency department visit, which is typically required of top-down models. Clearly, use and quality management programs will be needed to achieve the right balance of these competing interests, and value based programs can help align incentives as well.

Bottom Line

Most research and proposals for implementing home hospitalization programs assume they are an extension of hospital operations and assume hospital costs and reimbursement. But there are cost and other advantages to building home hospitalization on the foundation of home-based care providers, whose expertise includes keeping patients safe and healthy at home. Policy makers who design reimbursement for home hospitalization programs and set conditions for providers to participate in them should consider whether home-based care providers should be eligible to manage, or play a foundational role in, these programs. This could simultaneously save payers money, create operational efficiencies, and increase patient access. Physicians and hospitals sponsoring these programs should similarly consider the roles home-based care providers could play within current home hospitalization programs. Simply extending the reach of hospitals into patients’ homes is unlikely to allow the promising scale or cost savings stakeholders hope for from home hospitalization programs. Each year, hundreds of thousands of Medicare patients could benefit.

How other industry players are expanding their healthcare platforms  

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Last week, we introduced our framework for value delivery as a “healthcare platform”, in which an organization’s proximity to both the consumer and to the premium dollar determines how it competes as a “care supplier,” a “care ecosystem,” a “premium owner,” or a “population manager.” Traditionally, different healthcare companies have operated primarily in one of these four domains. However, as shown in the graphic below, we’ve recently seen many shift their business into one or more additional quadrants, as they seek to expand their value propositions. UnitedHealth Group is an obvious example: it has moved well beyond the traditional insurance business, via numerous provider and care delivery acquisitions across the continuum.

Other players have shifted from their own “pure play” positions toward more comprehensive “platform” strategies as well: One Medical adding Iora Health to enhance population health capabilities; Walmart moving beyond retail and pharmacy services, partnering with Oak Street Health to expand its ability to manage Medicare patients; Amazon getting into the employer health business. 

There’s a clear pattern emerging—value propositions are converging on a “strategic high ground” that encompasses all four dimensions of platform value, creating a comprehensive set of solutions to deliver accessible care, promote health, and grow consumer loyalty, with an aligned financial model centered on managing the total cost of care. Health systems looking to build platform strategies will find many of these competitors also vying for pride of place as the “platform of choice” for healthcare consumers and purchasers.

CVS Health to launch a virtual-first primary care platform

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The digital platform is designed to provide consumers with a coordinated healthcare experience across care settings. It’s being sold to Aetna’s fully insured and self-insured plan sponsors, as well as CVS Caremark clients, and is due to go live next year. According to CVS Health, the new offering “enables consumers to choose care when and where they want,” whether that’s virtually, in a retail setting (including at a MinuteClinic or HealthHUB), or through at-home services.

Patients will have access to primary care, on-demand care, medication management, chronic condition management, and mental health services, as well as help in identifying other in-network care providers. 

The Gist: CVS Health has been working to integrate its retail clinics, care delivery assets, and health insurance business. This new virtual-first care platform is aimed at coordinating care and experience across the portfolio, and streamlining how individuals access the range of services available to them.

CVS is not alone in focusing here: UnitedHealth Group, Cigna, and others have announced virtual-first health plans with a similar value proposition. Any payer or provider who aims to own the consumer relationship must field a similar digital care platform that streamlines and coordinates service offerings, lest they find themselves in a market where many patients turn first to CVS and other disruptors for their care needs. 

Is it the beginning of the end of CON? 

We’re picking up on a growing concern among health system leaders that many states with “certificate of need” (CON) laws in effect are on the cusp of repealing them. CON laws, currently in place in 35 states and the District of Columbia, require organizations that want to construct new or expand existing healthcare facilities to demonstrate community need for the additional capacity, and to obtain approval from state regulatory agencies. While the intent of these laws is to prevent duplicative capacity, reduce unnecessary utilization, and control cost growth, critics claim that CON requirements reduce competition—and free market-minded state legislators, particularly in the South and Midwest, have made them a target. 
 
One of our member systems located in a state where repeal is being debated asked us to facilitate a scenario planning session around CON repeal with system and physician leaders. Executives predicted that key specialty physician groups would quickly move to build their own ambulatory surgery centers, accelerating shift of surgical volume away from the hospital.

The opportunity to expand outpatient procedure and long-term care capacity would also fuel investment from private equity, which have already been picking up in the market. An out-of-market health system might look to build microhospitals, or even a full-service inpatient facility, which would be even more disruptive.

CON repeal wasn’t all downside, however; the team identified adjacent markets they would look to enter as well. The takeaway from our exercise: in addition to the traditional response of flexing lobbying influence to shape legislative change, the system must begin to deliver solutions to consumers that are comprehensive, convenient, and competitively priced—the kind of offerings that might flood the market if CON laws were lifted. 

From Amazon to New Balance, consumer brand execs bring ‘outsider’ perspective to healthcare

boardroom with woman leading team meeting

Massachusetts-based health system Wellforce recently appointed its first ever chief consumer officer, tapping an executive from a well-known sneaker brand.

Christine Madigan joined the health system to lead marketing and consumer engagement, Wellforce announced in January. She comes from New Balance Athletics, where she led the global marketing and brand management organization. Madigan was attracted to what she termed the “challenger brand” because of its nimble innovation strategy and its mission to help people live healthier. “I can’t imagine a more purpose-driven culture than that,” she told Fierce Healthcare. 

“As a marketing veteran from consumer products, Christine understands the importance of envisioning and building services around consumer needs. She will be a great asset in improving and modernizing the way consumers engage with the health care industry,” David Storto, Wellforce’s executive vice president and chief strategy and growth officer, said in the announcement. 

The move comes amid a rising trend in healthcare: executives sourced from outside the industry, and in particular from consumer brands, to lead innovation strategies. Fierce Healthcare spoke to several, some of whom have been in their roles for years. They agree that while there are many transferrable skills, there is also an advantage to being an outsider. 

To Madigan, the core challenge remains the same business to business—understanding who the consumer is and the different ways they engage with one’s brand. 

Aaron Martin, chief digital officer at Providence St. Joseph Health, who joined the health system from Amazon in 2016, echoed Madigan. “Bringing the patient focus—what we called at Amazon ‘customer obsession’—to Providence was key,” he told Fierce Healthcare.

Society is bombarded by healthcare marketing messages, Madigan noted. She wants to “drive some simplicity into the process.” While the system is built to provide reactive, acute care, Madigan sees preventive care as just as important. And a crucial part of facilitating that is establishing not only awareness of but trust in a provider. “Every detail matters in what you communicate in an experience,” she said.

And for organizations that don’t innovate, “somebody else is going to disrupt us,” Martin said.

To drive innovation at scale, Martin sees a disciplined strategy as key. At Amazon, that looked like picking an area to impact and measuring the value of closing that gap. Applying that to Providence, Martin worked with the clinical team to discover patients in need of low-acuity care were going to other providers instead of to Providence. So Providence launched ExpressCare, offering virtual appointments to recapture those patients and establish continuity of care.

Like Madigan, Novant’s chief digital and transformation officer Angela Yochem, who has held chief information officer roles at Rent-A-Center and BDP International, believes passive care is not enough to eradicate health inequities. “We’ve optimized for fixing things,” she said of the healthcare system. “I’d like to see the healthcare industry become more engaged continually. We need to understand our patients beyond what their last condition is,” she added, referring to social determinants of health.

“In retail, we used to say that customers shouldn’t have to shop our merchandising organizational chart,” said Prat Vemana, Kaiser Permanente’s chief digital officer, who transitioned in 2019 from chief product and experience officer at The Home Depot. To streamline how patients navigate an already highly fragmented healthcare system, Kaiser starts with the patient and works backward when developing digital experiences. 

A challenge in healthcare, Vemana acknowledged, is the lag in data around health outcomes. Whereas in retail, results are immediately visible, healthcare is less straightforward. “We have to develop workarounds to get directional information while waiting to see the results,” he said. 

The transformation of the sector won’t happen without diversity of thought and experience, Yochem said. It’s less about hiring from a particular sector and more about hiring from all over. Those people will have seen the potential for consumer engagement and will be able to “apply what we know to be possible,” Yochem said. Without those outsider insights in the insular sector, “you create an echo chamber, because you respond to problems in the same way.”